Sberbank head German Gref: "I can see no sources of finance for increasing wages or adjusting social sector salaries to inflation." Source: ITAR-TASS

Experts
warn that the economic forecast offered by Russia’s Ministry of Economic Development
may be too optimistic.

The government needs to be prepared for decisive action
in order to improve the situation, as the key negative trends
which slowed Russia's economic growth in 2013 are expected to carry over into
2014.

Stagnating on the brink of
recession

"The current negative growth
of consumer demand will continue," said Alexey Balayev with the Economic
Expert Group. Sberbank head German Gref agreed, saying "I can see no
sources of finance for increasing wages or adjusting social sector salaries to
inflation. Consumer lending will likely continue to decline gradually.
Everything is becoming more difficult, so the situation with growth drivers is
quite complicated."

"We must remember that natural
monopolies will have their rates frozen from 2014 on, and this will affect their
investment programs," said Igor Nikolayev, director of FBK Institute of
Strategic Analysis. "In addition, the consolidated returns of Russian
businesses have shrunk."

Most experts agree that gross
domestic product (GDP) will grow at a modest 1 percent to 2 percent in 2014, or
below the forecast of the Ministry of Economic Development.

"No fast economic growth is
to be expected in 2014," said Maxim Petronevich, the chief expert at
Gazprombank's Center for Economic Forecasting. "It could prove to be as
slow as 1 percent to 1.5 percent, even despite the positive effect of the Sochi
Olympics. However, this should not be perceived as a negative trend. Slow
growth is a natural phenomenon and a normal phase of any economic cycle
anywhere in the world."

Seeking new growth areas

Petronevich believes there will
be an active revision of economic growth drivers in 2014. The private sector,
supported by private initiative, is a promising big segment with minimum
government intervention.

"The sector is benefiting
from a powerful flow of investment at 15 percent per year," Petronevich
said. "This boom partially offsets the decline in investment in the basic
materials sector. If the trend continues, then the expected low economic growth
will signify structural economic changes rather than an overall
recession."

Another opinion has it that the
defense industry may become a new growth area. "New production enterprises
and new jobs may get created in this sector, and this will have a multiplier
effect," said Vladimir Klimanov with the Russian Academy of the National
Economy of the Russian Government (RANEPA).

"Entire chains of related
production facilities may be set up, supporting the development of individual
regions."

World Bank chief economist Sergey
Ulatov said an increase in workforce productivity may serve as another growth
factor.

However, systemic reforms are
needed for the new growth drivers to start working, he added.

FBK analysts are of the same
opinion, saying that Russia's weakened economy will face global challenges in
2014. These challenges will include the changing world energy market,
exacerbated by the shale gas revolution, as well as the overall transformation
and halted revival of the modern economic model. In light of these events, FBK
analysts said, Russia needs to reinvent its own economic model.

"Now is the ideal time for
launching a number of very important reforms," Sberbank's Gref said. He
notes, however, that the system of administration must be reformed first.